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Analysis: BTC pipeline explosion

If the rupture proves to be sabotage, it will savage Azerbaijan's economy, now one of the world's fastest-growing, which projects revenues from BTC as high as $230 billion over the next two decades. The economic fallout will not be limited to Turkey and Azerbaijan either; besides the massive revenue loss to Western BTC consortium investors, BTC now supplies an estimated 1 percent of global daily energy needs.
by John C.K. Daly
Washington (UPI) Aug 6, 2008
Following the implosion of the Soviet Union in 1991, a new "Great Game" began, this time between Russia and the United States, which replaced Britain in a protracted, covert struggle for the Caucasus and Central Asia, the ultimate prize being the region's vast energy reserves, particularly those of the Caspian. A decade ago Vice President Dick Cheney, then Halliburton CEO, remarked, "I can't think of a time when we've had a region emerge as suddenly to become as strategically significant as the Caspian."

The problem for Washington was how to export rising volumes of Azeri oil without using the traditional network of Soviet-era pipelines, which transited northward to Russia's Black Sea Novorossiisk port, or constructing export facilities southward through Iran, subject to U.S. sanctions. The solution was the construction by an international consortium of the $3.6 billion, 1 million barrel per day, 1,092-mile Baku-Tbilisi-Ceyhan pipeline, which began operations in May 2005. Now a mysterious fire on a portion of the BTC transiting Turkey has caused BTC operator British Petroleum to declare force majeure, and if the investigation reveals possible sabotage by the separatist Partiya Karkeren Kurdistan (Kurdistan Workers' Party, or PKK), as indicated in initial sketchy Turkish media reports, then the West's most expensive post-Soviet energy success has become a new front line in the nearly 30-year war between the PKK and Ankara.

The BTC transits high-quality crude from Azerbaijan's offshore Azeri-Chirag-Guneshli fields to Turkey's deepwater Mediterranean terminus at Ceyhan.

Initial Turkish media reports stated an explosion occurred in the Refahiye BTC section, which resulted in a conflagration sending flames 160 feet into the air and halting oil flow. According to the reports, investigators are attempting to determine whether the explosion was an industrial accident or, more ominously, the result of PKK sabotage.

As Turkey, stung by PKK attacks across the border into its territory, last autumn deployed troops along the frontier, the PKK, well aware of the vulnerabilities of Turkey's energy imports, upped the ante last October, threatening, in the event of a Turkish military action, not only to strike Iraq's Kirkuk-Ceyhan oil export pipeline, but even to attack tankers heading for Turkey's Mediterranean port.

The same month the PKK's Abd-al-Rahman Chadarchi stated that if PKK forces in northern Iraq were attacked, his group would assault Turkish oil targets, "since they bring huge amounts of money to Turkey," adding, "The military regime in the country will use this (energy revenues) to develop its war machine to utilize it against the Kurdish people in Turkish Kurdistan," while Iraqi Parliament Speaker Mahmoud al-Mashhadani said, "Northern Iraq cannot be pressured. Iraq is a rich country, and if there are economic pressures, we will cut off the (Kirkuk-) Ceyhan pipeline." Turkey subsequently launched a limited incursion against PKK forces ensconced in northern Iraq in February.

The 600-mile, 40-inch Kirkuk-Ceyhan (Dortyol -- "four roads" or "crossroads") dual export pipeline terminates at Turkey's Dortyol port on the Turkish Mediterranean coast near the BTC terminus at Ceyhan. Dating from Saddam's time, the Kirkuk-Ceyhan pipeline had a pre-invasion capacity of about 1.5 million to 1.6 million bpd but shipped around 800,000 bpd. Kirkuk-Ceyhan is Iraq's largest operable crude export pipeline, but repeated insurgent attacks have lowered its current output to around 600,000 bpd. In contrast to the frequently assaulted Iraqi pipeline network, however, a BTC attack would represent a quantum leap in PKK abilities and objectives.

The explosion occurred about 11 p.m. on Aug. 5 on the BTC pipeline segment at Yurtbasi village; after Ankara was notified, valves 29 and 31 were closed as officials waited for the oil contained in the 4-mile segment of No. 30 terminal to burn out.

The significance of a PKK attack against BTC would extend far beyond Turkey. British Petroleum heads the BTC consortium and, besides operating the pipeline, has a 30.1-percent share of the project, exceeding that of the State Oil Co. of Azerbaijan, which owns 25 percent. Other Western investors include Chevron (8.9 percent), Norway's StatoilHydro (8.71 percent), Turkey's Turkiye Petrolleri Anonim Ortakligi (6.53 percent), Italy's Eni/Agip group and France's Total (5 percent apiece), Japan's Itochu (3.4 percent), the Japanese Inpex Corp. (2.5 percent) and the American Hess Corp. (2.36 percent). Western concerns receive 75 percent of BTC's revenues.

For Turkey, BTC's transit revenues are payback for supporting Western sanctions since 1991's Operation Desert Storm, as Ankara subsequently estimated in March 2003 that in supporting sanctions against Saddam's regime it had lost $80 billion in transit fees.

Security was a prime consideration in the BTC's design, and the consortium subsequently buried the entire pipeline to thwart possible attacks. BTC's eight pumping stations (two in Azerbaijan, two in Georgia and four in Turkey), however, are above ground, as are their electrical power grids. More than half of BTC traverses 669 miles of Turkish territory, nearly all of which contains significant Kurdish populations, as does the Kirkuk-Ceyhan pipeline.

If the rupture proves to be sabotage, it will savage Azerbaijan's economy, now one of the world's fastest-growing, which projects revenues from BTC as high as $230 billion over the next two decades. The economic fallout will not be limited to Turkey and Azerbaijan either; besides the massive revenue loss to Western BTC consortium investors, BTC now supplies an estimated 1 percent of global daily energy needs.

BP spokesman Murat Lecompte downplayed the reports of the conflagration, as did the market. Depending on what the investigation uncovers and how long BP decides to maintain its force majeure stance, it is a decision that complacent investors may yet come to rue.

(e-mail: energy@upi.com)

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